Two severely disabled adults have won a landmark high court battle over cost-cutting by their local authority when a judge ruled that Isle of Wight council's plans to reduce its adult social care budget are unlawful.

Mrs Justice Lang, sitting in London, said: "The defendant [council's] decision on 8 and 23 February 2011 to adopt new community care eligibility criteria are quashed."

Lawyers for the two claimants, referred to as JM and NT, said the ruling sent "a very clear message" to all councils in England and Wales seeking to make similar cuts.

The judge ruled that the council had failed to comply with its own internal guidance on its new policy for assessing eligibility for adult social care. A consultation document "provided insufficient information" to enable those consulted on the criteria changes "to give intelligent consideration and an intelligent response", the judge said.

The ruling is the second high court judgment this week to deal a blow to local councils anxious to save money in the wake of government spending restrictions.

On Wednesday, another judge struck down a decision by Sefton council, on Merseyside, to freeze care home fees for the second year running and ordered the authority to carry out further consultation.

The lawyer Alex Rook of Irwin Mitchell, who represented JM and NT, described the Isle of Wight decision as a landmark judgment that would "provide clarity for the thousands of disabled people on the island who stood to lose all or part of their social care packages under the proposed changes".

The ruling would prevent the council "from cutting services to some of the most vulnerable disabled people" and would provide "comfort and peace of mind" to thousands of residents.

Rook said: "This landmark victory sends out a very clear message to all councils in England and Wales.

"If a council seeks to make cuts to its budget for adult social care, it cannot do so by only meeting certain needs designed to keep someone safe, but neglecting their overall quality of life.

"The judgment also makes it very clear that if a thorough and full consultation process is not carried out when considering proposed cuts to services to disabled adults, the courts will quash the policy."

The first claimant, JM, aged 32, has severe autism and a brain injury suffered at birth. The court heard that he lives with his retired parents, who devote themselves to his care, and he struggles to communicate with anyone else. He needs support with all areas of his life throughout the day.

The second claimant, 31-year-old NT, also has autism and a learning difficulty. He is currently living in residential accommodation provided by the council during the week, but returns home to his mother every weekend.

The court heard that he is highly vulnerable and anxious and has communication difficulties. His mother launched legal action because she feared the council's new policy could potentially have a "devastating" effect on NT's quality of life.

Council chiefs said there would be no appeal, adding: "We will immediately comply with the judge's ruling and return to the previous eligibility threshold whilst we consider our next steps." They described the pressure to make "substantial" budget savings while at the same time protecting the vulnerable.

The council said it was facing a reduction of £21m in central government funding, representing a £33m budget gap taking into account inflation and increased need.

It added that 80% of those savings had to be made by the end of 2012-13. The savings anticipated through changes to the council's community care eligibility criteria, plus charging, amounted to £2.5m.

In a joint statement, the council leader, David Pugh, and the cabinet member for adult social care, housing and community safety, Roger Mazillius, said: "We are naturally disappointed with this decision, having genuinely sought to undertake a thorough and proper process of consultation.

"The Isle of Wight council was required to make substantial budget savings within a short timeframe, while at the same time protecting those who were most vulnerable and in need of support. We also had to look to the future and position ourselves to face the demographic and financial challenges that the coming years will bring.

"We will now need to spend time reflecting on the implications for both service users and the wider council budget before deciding on our next course of action.

"We accept the judge's decision that we did not provide sufficient information and that, in our attempts to explain what was a complex decision, we unintentionally breached some elements of the guidance."

The statement said council staff would be making immediate contact with the 32 service users directly affected by the changes "to offer a reassessment of their needs".

It added: "We consider that the staff who have managed the changes over the past nine months have done so with care, sensitivity and professionalism, and we have no doubt that they will continue to do so as they respond to this outcome.

"If people have queries in relation to whether they are one of the 32 affected, they can contact us on 01983 823516."